Pdvsa: Significantly under 2 million b/d before June?

President Hugo Chavez and his faithful crony, Energy Minister Rafael Ramirez, claim that Venezuela’s crude oil production capacity tops 3.4 million b/d – which is a lie, of course.

Petroleos de Venezuela’s real crude oil production presently averages about 2.3 million b/d, assuming the Chavez government has not implemented any of Venezuela’s assigned production cuts (totaling over 300,000 b/d if the three cuts decided by Opec since August 2008 are combined).

But Pdvsa is believed to have forced about 190,000 b/d of Opec-mandated production cuts on its joint ventures with foreign companies. In effect, JV’s accounting for about 25% of Venezuela’s total crude production are shouldering about 60% of the country’s assigned Opec production cuts.

If so, then Venezuela is currently producing about 2.1 million b/d, which means that in order for Pdvsa to meet local and international supply commitments the company is buying a great deal of oil on the open market.

However, it gets potentially much worse very soon.

As of 30 September 2008, Pdvsa’s accounts payable totaled over $7.8 billion, according to the company’s third quarter financial report. But Pdvsa stopped paying oil services companies, other contractors and suppliers in August 2008.

At mid-January 2009, Pdvsa’s finance vice president, Eudomario Carruyo, said the company’s unpaid debts had grown to over $11 billion, though Caracas Gringo is told the real total is closer to $12.5 billion as of 31, January 2009, including over $1 billion owed to US oil services companies Schlumberger and Halliburton.

Understandably, oil services companies are starting to shut down their operations and fire workers. No pay, no play.

Dallas-based Ensco International last week halted operations on a jack-up drilling rig in the Gulf of Paria. Pdvsa subsidiary Petrosucre is now operating the rig, but Ensco will remove it from Venezuela when its contract ends in a few weeks. Ensco reportedly is owed about $40 million.

Tulsa-based Helmerich & Payne last week also shut down operations at two of the 11 rigs it has in Venezuela, and expects to shut down the nine still in operation by July. Pdvsa owes H&P about $100 million.

And a consortium in which Vinccler is a partner also halted work about two weeks ago on a gas compression plant which is a vital part of the Anaco Gas project which Pdvsa Gas is developing.

Pdvsa is pleading for a little understanding and steep discounts.

One Pdvsa official told Platt’s Oilgram last week that the reason the company isn’t paying its bills is that everyone in Pdvsa is too occupied working for the success of President Chavez’s re-election referendum. Of course, this is cow flop.

Carruyo says the oil services companies, contractors, et al have been asked to subtract “at least 40%” from their unpaid invoices to take into account sharply lower oil prices.

“They raised their billed costs over 40% when oil prices were high, so now that prices are down sharply they should reduce their bills to us,” Carruyo explains.

Meanwhile, Pdvsa’s production will fall in coming months if more oil services companies reduce or suspend their operations in Venezuela, and the drop in production could be very significant, averaging between 250,000 b/d and 500,000 b/d, by some independent estimates.

Venezuela’s oil industry is quite old. The majority of Venezuela’s producing oil fields were in production years before 1970. In fact, Venezuela had a relatively mature oil industry before WW2.

As a result, Venezuela has one of highest oil depletion rates in the world, averaging about 25% annually if both natural and mechanical depletion are combined.

Venezuelan oil fields require a great deal of 24/7 maintenance to offset natural depletion and keep the mechanical infrastructure, much of which has been operational for up to 50 years, in good condition.

If the oil services companies curtail or suspend their activities, essential maintenance will be discontinued and production will plummet.

But there’s more.

The more than $12 billion Pdvsa owes its contractors and suppliers is creating disruptions in Venezuela’s financial sector, since the unpaid oil services companies and contractors cannot stay current with their own debt payments to creditors.

The unpaid oil services companies and other contractors also are starting to lay off thousands of workers, stoking more discontent among an increasingly restive army totaling about 150,000 workers if Pdvsa’s payroll and non-Pdvsa oil industry payrolls are combined.

In a worst case-scenario, Pdvsa’s oil production could fall under 1.8 million b/d by mid-2009, and its operations could be disrupted even more by a conflict with the oil unions over money which Pdvsa doesn’t have.

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About Caracas Gringo

Representing less than 0.00000000001515152% of the world population as of 31 December 2011.
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